Pub drinking slump cuts sales at Diageo by 6%

A sharp decline in pub drinking ahead of the smoking ban has affected interim results at Diageo Ireland with volumes down 6 per cent for the second half of 2003 across its brands.

The company, which sells brands such as Smirnoff, Baileys and Guinness, said the "on-trade" in pubs was down 8 per cent and off trade was only up 3 per cent. The company also predicted that - at least initially - the smoking ban might reduce sales.

Finance director Mr Charles Coase said of the smoking ban: "There will be some initial adverse impact. It depends how soon consumers adapt to the change." the company conceded, however, that some customers would increase consumption in pubs because of the ban.

On the general trends, a statement from Diageo Ireland said: "The decline in the market and a shift towards at-home consumption impacted on the Diageo Ireland performance, with volumes down 6 per cent."

It said the company had already reorganised itself to deal with this change. It said 135 jobs had been shed and it was fully committed to the future of the St James's Gate brewery.

Net sales for the second half of 2003 were down 5 per cent at €515 million. Operating profits, after restructuring costs of €16 million, were down 17 per cent at €107 million.

The managing director of Diageo Ireland, Mr Brian Duffy, said the Irish alcoholic beverage market was now in decline, with volumes down 4 per cent. He said this reflected falling consumer confidence and changing lifestyles and demographics.

Mr Duffy said that with pubs making large investments in premises, the on-trade sector was now entering a difficult period.

Speaking about Guinness, he said volumes were down 7 per cent due to "the general market decline" and exceptionally warm weather during the summer.

"However, the brand's performance recovered strongly in the latter quarter of the period, returning to previous market share levels. In the context of the overall market, our lager brands performed well with volumes just down 2 per cent."

Within the Diageo results, there was a strong performance for Baileys, which grew volumes by 9 per cent and sales by 11 per cent in the second half of 2003.

The new chief executive of R&A Bailey, Ms Wendy Darlington, said the product's largest market, the US, had been "phenomenal", delivering the best ever Christmas for the brand. The success in the US was matched by volume and sales growth in Europe, she added.

In Ireland, the picture was radically different with volumes down 17 per cent and sales down 19 per cent.

The company blamed the Government's decision to increase excise duties by more than 40 per cent on spirits. Mr Peter O'Connor, spokesman for Baileys in Ireland, said 2004 looked more promising, but it would be difficult to recover all the sales lost because of the budgetary changes.

Meanwhile, the parent group of Diageo Ireland, Diageo plc, warned that the falling dollar could jeopardise faster growth in key brands such as Johnny Walker and Baileys.

The firm's finance director, Mr Nick Rose, said if exchange rates remained unchanged, profits could dip by $151 million in the second half of its financial year.